ARE TECH STARTUPS IN AFRICA A GOOD INVESTMENT?

When investors thought of where to best take their money for investment, only a few years ‘Africa’ was always the last place to come to mind. Today however, different African countries are seeing a surge in their investment scene that has got many investors thinking of the continent as the next hub for start-ups.

E-Commerce and the mobile sectors are among the areas that are experiencing a large degree of enterprise. A few organizations that support these enterprises have been formed, which include Millicom Foundation’s product, the Think Acceleration Program, with an annual budget fund of USD $10 million. Kenya’s largest telecom Safaricom very recently launched Spark, a start-up investment fund worth USD $1 million.

This support for start-ups in Africa is much like a warmly welcome fresh breeze. In contrast to the past where many start-up ideas were ripped off, today support for these ideas can be seen through the investments funds made available to small companies.

Looking Ahead at Tech Investments and Innovation in Africa

Within the next three years, Africa could evolve its E-commerce market to USD $50 billion, as reported by Frost & Sullivan, two years ago, Africa’s E-commerce size was USD $8 billion. There has been a substantial growth since then, which can be pinned to the growing Internet and mobile market around the continent. Further on, many economies in the Sub-Saharan region are experiencing a fast rate of growth, further feeding the need for other sectors and E-commerce.

Recently, IBM announced plans to channel an additional $60 million for a new startup accelerator and tech hub in Johannesburg. This new hub will be IBM’s 12th research facility in South Africa. It will however be different from its predecessors in that being part of University of Witwatersrand will see it gaining more funding for postgraduate research as opposed to its occupying physical space.

The ease of access to low-cost bandwidth is also further fuelling the revolution of technology in Africa. In fact, according to TechCrunch, Africa’s bandwidth has over the past years seen growth by a part of 200. Africa can also develop a stronger technology infrastructure given that there has been a 90 percent decline in its wholesale bandwidth prices. This rapid growth has made it seem like Africa’s tech industry is growing much faster in expansions and investments at once. Source

Is Africa’s Tech Scene Publicity Justified?

The rapid expansion of the continent’s tech scene has been very intense, leading many to critique whether the value generated by these start-ups are sustainable and can actually measure up to the publicity. An example is VC4 Africa’s report where it is shown that investments made through this platform increased from USD 12 million to a whooping USD 27 million in just one year, from 2013 to 2014. Further reports from different other investors also show that almost half of the ventures they support begin getting revenue just during their first year in business.

Looking at the investors interested in Africa’s tech scene, both domestic and foreign investors are taking an interest in the continent’s steady eruption in technology. London based NewGenAngelsAfrica’s eVa Fund (e Ventures Africa Fund) as well as  the East Africa Capital Fund are an example of some of the angel networks that are involved in early-stage funding, ensuring that African start-ups have the necessary funds to sustain their growth.

Where is All the Dollars Invested Going?

In terms of startups and fund raising, Nigeria and Kenya are leading in Africa, according to reports by VentureBeats. New reports show Nigeria laying claims to most of the startup ventures that raise funds, with Kenya taking the title for bigger overall investments. 24 of over 100 companies that were venture backed were Nigeria based, raising funding of around USD $1.5 million. 19 startups were drawn to Kenya, with a funding of around $4.7 million. Other countries like Tanzania that has 12 startups and South Africa has 11 startups that have also secured funding.

As compared to the number of start-ups that Silicon Valley draws, these numbers in Africa may not seem that impressive. However these numbers can be counted as astounding given the rate at which technology start-ups have erupted. Africa is now in what is termed as a Silicon Safari, with its economy growing in leaps and bounds, thus presenting a high chance of innovation and investment.

Thus, I believe that investments will increase given the rapid growth of start-up programs in Africa. With the increased internet usage as well as companies like Facebook supporting free internet to African countries, Tech start-ups are sure to gain a bigger market. A look at recent accelerators like startup 90 and Savanna Fund are also clear indicators that Tech start-ups in Africa are worth investing in.